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5 SIMPLE TIPS TO GET

PROPERTY FINANCE

IN TODAY'S TIGHT LENDING MARKET

5 SIMPLE TIPS TO GET PROPERTY FINANCE IN TODAY'S TIGHT LENDING MARKET

Disclaimer

This report is created by Freedom360 Pty Ltd. ABN 71 607 582 721. The parties making this report available to you give no warranty nor accept any liability for any decision based wholly or in part on this report, such as any decision to invest in property or choose a specific financial product.

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5 SIMPLE TIPS TO GET PROPERTY FINANCE IN TODAY'S TIGHT LENDING MARKET

INTRODUCTION

Until recently, obtaining finance for the purchase of Australian residential property was the easiest and most accessible it had been in years.

The restrictive measures and stringent criteria enforced by banks and lenders following the Global Finance Crisis were wound back.

Just as importantly, interest rates are presently the lowest they've been in years, if not decades; where the historical average for mortgage interest rates is around 7-8%, Australian property owners are currently paying 4-5%.

This has been good news for investors... Until APRA (the Australian Prudential Regulation Authority) stepped in mid-2015 to put the brakes on investor loans.

Concerned about the risk of a potential property bubble forming, particularly in Sydney and Melbourne, APRA prompted Australian banks and lenders to enforce a number of measures that have had the impact of making it extremely difficult for would-be investors to get finance approval.

These have included:

Decreasing LVRs: Where investors were previously able to access 90% loans (or even higher), this level of LVR is increasingly difficult to secure, with a maximum of 80% LVR imposed by many lenders.

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5 SIMPLE TIPS TO GET PROPERTY FINANCE IN TODAY'S TIGHT LENDING MARKET

Increased interest rates on new loans: For those investors who can come up with at least 20% of the property's purchase price as a deposit, the interest rate they'll pay on their mortgage is now higher than it is for owner occupiers.

Increased interest rates on existing loans: Investors with existing properties in their portfolio have felt the pinch of APRA's crackdown, with many banks imposing an interest rate margin of up to 0.30% on all investment loans on their books.

Lower borrowing power: The above-mentioned interest rate hikes have conspired to lower investors' borrowing power.

Postcode restrictions: There are certain areas in Australia that banks and lenders consider "too risky" and either won't lend for property in this postcodes, or require a much higher deposit of up to 40%.

Higher assessment rates during loan processing: In the past, banks have typically `loaded' the current interest rate by 2.0% to ensure that mortgage holders would still be able to afford their loan if interest rates increased. Now, many lenders and even mortgage insurers are using an assessment rate of at least 8% ? which is up to 4% higher than actual rates.

These are just some of the challenges facing investors in today's market ? and that's if you're an ordinary, everyday Australian with a good credit rating. Throw a complicated application or imperfect credit history in the mix, and it may seem like getting finance approval is `mission impossible'. I've helped hundreds of investors buy properties over the years and in my experience, I've learnt that securing suitable property finance is just as important as finding the right deal. I've compiled this report to help give you the edge when completing your finance application. Follow the tips outlined in this report and you'll give yourself the best possible chance of securing a loan approval ?? and you'll be well on your way to securing your next investment!

Yours in success,

October 2015

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5 SIMPLE TIPS TO GET PROPERTY FINANCE IN TODAY'S TIGHT LENDING MARKET

FINANCE TIP #1: REDUCE YOUR DISCRETIONARY DEBT

It goes without saying that the better shape your personal finances are in, the better chance you'll have or getting your mortgage application approved.

But did you realise that the amount of personal debt you are carrying could limit your borrowing power by tens of thousands of dollars ? and could potentially stand in your way of obtaining a loan approval altogether?

Every lender treats credit cards and personal loans differently, but as a general rule, the more personal debt you have in your name, the more financial risk your lender sees.

As a general rule, most lenders assume you will need to repay at least 3% of your credit cards' overall limit each month. If you have several credit cards totalling $20,000 in limits, then lenders may assume you need to contribute up to $600 of your after-tax income per month towards repaying that debt.

Note that they make this assumption on your credit limit, not your credit balance. You could have a credit card with a balance of zero and a limit of $10,000, and banks will crunch the numbers on your loan application by assuming that you have a full $10,000 debt.

They evaluate your potential to spend that money as a "sure thing" to ensure you will still have the capacity to repay the loan if you do indeed spent right up to your credit cards' limits.

Those unused limits on your credit cards can be detrimental to your mortgage borrowing capacity, as every $1,000 in credit card limits adds an additional $30 per month (minimum) to your monthly expenses ? and consequently reduces your borrowing power.

By how much, depends on the lender you're applying with. I've heard of some lenders who evaluate a $5,000 credit card limit as reducing an applicant's borrowing power by up to $25,000!

I did a quick calculation using Aussie Home Loans' mortgage calculator, as it combines lending policies and criteria from over a dozen lenders.

I've entered an example scenario of a couple with no dependants earning $70,000 each, with personal expenses per month of $3,500 combined, borrowing at an interest rate of 4.75%.

The borrowing power results were stunning:

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5 SIMPLE TIPS TO GET PROPERTY FINANCE IN TODAY'S TIGHT LENDING MARKET

With credit card debt of $10,000 With credit card debt of $20,000 With credit card debt of $30,000 With credit card debt of $40,000 With credit card debt of $50,000

Minimum monthly repayment $300

$600

$900

$1200

$1500

Combined borrowing power

$733,000

$691,000

$649,000

$607,000

$565,000

For each $10,000 worth of credit card debt recorded between two applicants, their combined borrowing power was reduced by a $42,000!

As a result, it seems pretty clear to me that cutting up your credit cards and cancelling your accounts ? or at the very least, minimising your credit limits and working hard to pay off your remaining balances ? is going to put you in a much better position when applying for mortgage finance.

My tip?

Focus on eliminating as many personal debts as possible in the months prior to applying for a loan application. The lower your personal debts, the greater your borrowing power will be and the more appealing your application will become to potential lenders.

FINANCE TIP #2: ENSURE YOU HAVE A BLEMISH-FREE CREDIT RATING

There's a really cool scene in The Matrix (stay with me here!) where the characters begin talking about Morpheus, and someone says, "He knows more about you than you could ever imagine."

Banks and lenders are kind of like this as well: they know a lot more about you and your personal spending habits, your debt repayment attitudes and your attitude towards financial responsibility overall than you probably know yourself!

It's their job to keep track of these types of things and from a credit history standpoint, it is important for you as a loan applicant to investigate what the banks think they know about you.

Ultimately, every credit transaction you're involved in ? whether it's a phone contract, a home energy plan, a credit card or a personal loan ? is evaluated by credit reporting agencies.

The way that we as consumers buy, spend and manage our credit is recorded and scored, both positively and negatively, giving potential lenders a decent amount of information to work with.

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5 SIMPLE TIPS TO GET PROPERTY FINANCE IN TODAY'S TIGHT LENDING MARKET

By visiting the website .au, you can obtain a copy of this report completely free of charge. For a small annual fee, you can get a subscription so that any time there's a hit on your credit record, you are notified straight away. This is a valuable protective measure you can take against potential credit fraud.

Just as importantly, staying on top of your credit profile means you can become proactive about any potential credit blemishes that could be stopping you from getting a loan.

If you've got an overdue bill, such as a Telstra account that is or was in arrears, as soon as you are overdue by even a slight amount, it could hit your credit record with a black mark and a default. As soon as you've got a default on your record, you may have to say goodbye to mainstream lending for a number of years.

There are a number of debtors that can impact your credit rating: it could be an overdue or unpaid phone bill, store credit card, internet bill, debt with the tax office or a standard credit card or personal loan. The amount could be as little as $200. And if you default on your payment, that listing could be entered on your credit record and generally, it stays there for five years.

A credit default or black mark is obviously going to increase your risk profile in your banks' view, but the good news is, you are able to dispute transactions if you believe they've been listed incorrectly or unfairly. You can actually manage your credit file to keep clean.

That makes this is an important resource for investors, as your credit file effectively gives banks and lenders an overview of your financial habits.

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5 SIMPLE TIPS TO GET PROPERTY FINANCE IN TODAY'S TIGHT LENDING MARKET

They can see your conduct and your character as a consumer, an investor and a spender. They get a real sense of the story behind you and your money ? and you want to do everything in your power to make sure that story is a positive one.

My tip?

This is a service that gives you an insight into what the banks' see when they review your loan application, and you can access it absolutely free of charge ? so why wouldn't you use it?

I recommend to my clients that at a minimum, they get an updated copy of their credit profile every 12 months. It will literally take you a few minutes to order and it gives you peace of mind that your official credit history reflects your genuine situation. Visit .au and request your free copy today.

FINANCE TIP #3: ENSURE YOU HAVE THE RIGHT PROPERTIES IN YOUR PORTFOLIO

When it comes to the properties in your portfolio, nothing is sacred.

People often get very emotional and caught up in property, and as a result we can become very connected to our portfolio, but to me that makes no business sense whatsoever.

It comes back to asking yourself what you value more; do you value this property that you currently own more, or do you value your financial freedom and freedom security more?

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